Bill Jamieson: More powers won’t save us from debt

CONTROL over income tax rates and levels, part assignment of VAT revenues, control over air passenger duty – and more borrowing powers: whether it’s enough or too little pales before the reality of deeply constrained public finances – in every part of the UK.

The full extent of that constraint will be set out in Chancellor George Osborne’s Autumn Statement this Wednesday. A good year of economic growth and particularly in numbers in work: the textbook conditions for a surge in government tax revenues.

But no surge has resulted. Instead, there is more reliance than ever on borrowing, and debt continues to spiral. Even stamp duty revenues are now falling short of target despite a rise in house prices. Seldom will failure have been so heavily disguised as progress or depleted coffers made to appear as a job competently done.

And all this while a tumbling oil price – down to $73.19 a barrel over a turbulent week, and tearing into already under-shooting tax revenues – presents both Osborne and Scottish finance minister John Swinney with severe problems.

We may have “more powers” – but the reality overlooked in the cascade of commentary over Lord Smith’s Fiscal Commission is that for as far ahead as we can see the Scottish Government is going to be operating within far greater limits than policymakers have allowed for. As for more borrowing powers, details of which have still to be revealed, these in current circumstances have about as much allure as putting lipstick on a pig. For it is borrowing and debt that wholly and directly account for the big problems we face.

I appreciate that these are considerations rarely raised by the Scottish Government: what matters is “more powers”. To the extent that debt and deficit problems figure, these are dismissed as “Westminster problems”, part of the awful Tory austerity from which “more powers” will deliver us. Nothing could be further from the truth.

The reality of tax revenues falling markedly short of almost all expectation should not be lost on a Holyrood administration heady with the prospect of more powers over income tax. The reality, as Osborne will reveal, is that for all his pulling on those economic levers, results can be the opposite of those expected.

The headline figure to look out for this week is public sector net borrowing. The figure projected in the March Budget was of a fall in this borrowing figure to £86 billion in the 2014-15 financial year. Instead, borrowing has been running 6 per cent higher in the seven months to October. We are thus likely to see a sharp upward revision to £97bn.

For a government pledged to bear down on borrowing this is a major disappointment at the heart of its mission.

Tax revenues have been the big disappointment, with weak wage growth the main culprit. The economic upturn has not been creating enough higher rate or additional rate taxpayers.

And such problems have not come singly. Over the first seven months of the year, receipts from offshore corporation tax were down by 34 per cent year-on-year and receipts from petroleum revenue tax were down by 63 per cent.